Monday, May 14, 2012

Chesapeake (CHK) Faces Increasing Shareholder Pressure

Chesapeake Energy Corporation (NYSE:CHK) CEO Aubrey K. McClendon, who is also co-founder of the company, faces growing pressure from shareholders as the company struggles to survive in the midst of heavy debt and anemic natural gas prices.

With just about everyone in the industry knowing the financial struggles of the company, it has made it impossible to sell quality assets for what they're worth, as the company has been receiving low ball offers for some of its properties. That's not likely to change in the current scenario Chesapeake faces.

That has led to more debt, as the company announced it has secured a $3 billion loan from Jefferies Group (NYSE:JEF) and Goldman Sachs (NYSE:GS).

Low natural gas prices have hammered the company after its debt load grew to $13 billion as a result of aggressively investing in numerous properties.

Speculation as to the reason behind taking on more debt to deal with the situation is the board of Chesapeake is probably requiring McClendon to go that route rather than sell good assets at fire sale prices.

The $3 billion in financing should help Chesapeake boost its negotiating position a little, although time is definitely working against it. Chespeake recently said it will delay some of its asset sales in order to secure the financing, which resulted in the shares getting hammered, plunging over 13 percent on Friday, May 11.

After the fallout, a Chesapeake spokesman asserted it still has the of still hitting the asset sales target of $10 billion they set for 2012.

Billionaire Carl Icahn is building a significant stake in Chesapeake again, which would probably force the hand of McClendon to take the necessary steps to right the company ship.

The last time Icahn did this he acquired over 5 percent of Chesapeake, which forced McClendon to sell all its holdings in the Fayetteville shale of Louisiana for close to $5 billion for the purpose of reducing debt. Icahn reportedly made about $500 million after he sold his shares in the company.

There is growing pressure from Shareholders for McClendon to step down as CEO of Chesapeake.

No comments:

Post a Comment